Is Sony a Buy?

With shares of Sony (NYSE:SNE) trading around $17, is SNE an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Sony is involved in the electronics, games, entertainment, and financial businesses. The company operates in several different segments: Consumer Products Services, Professional Device Solutions, Movie, Music, Finance, Mobile, and Other. Through its segments, Sony is able to provide a wide range of products and services. These products include televisions, cameras, personal computers, game consoles, navigation systems, audio and video equipment, software, phones, and media platforms. The company brings new technologies to the hands of the average player as well as professional users. Look for Sony to continue to be a top choice for avid technology adopters worldwide.

March was a solid month for Sony when it came to the ever-broiling competition it has with Microsoft (NASDAQ:MSFT) in the video game console market. Sony took the cake in the four full weeks that month, with 655,518 PlayStation 4 units sold compared to Microsoft’s 433,940 Xbox One units, and even Nintendo’s (NYDOY.PK) 154,227 Wii U consoles sold — the PS4 beat both combined. Now it’s clear that Sony isn’t letting up. Though nothing stood out as a major boon for Sony in the four mostly full weeks of April quite like Titanfall did for the Xbox One in March, it still managed to come out ahead of the Xbox One in a number of ways.

T = Technicals on the Stock Chart Are Weak

Sony stock has seen seen its fair share of struggles over the past few years. The stock is currently pulling back and may need time to consolidate. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Sony is trading slightly below its rising key averages, which signals neutral to bearish price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Sony options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Sony options

30.66%

23%

20%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Steep

Average

July Options

Steep

Average

As of Thursday, there is average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Sony’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Sony look like and more importantly, how did the markets like these numbers?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

115.39%

22.71%

82.5%

125.35%

Revenue Growth (Y-O-Y)

23.86%

10.64%

-8.96%

-5.41%

Earnings Reaction

3.89%

-11.17%

4.37%

0.78%

Sony has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Sony’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Sony stock done relative to its peers – Microsoft (NASDAQ:MSFT), Canon (NYSE:CAJ), and Dolby Laboratories (NYSE:DLB) — and sector?

Sony

Microsoft

Canon

Dolby Laboratories

Sector

Year-to-Date Return

1.19%

6.34%

-0.16%

1.89%

3.31%

Sony has been an average performer, year-to-date.

Conclusion

Sony is a provider of innovative technology products to consumers and companies worldwide. The company’s PS4 still managed to come out ahead of Microsoft’s Xbox One in April. The stock has seen its fair share of struggles over the past few years and is currently pulling back. Over the last four quarters, earnings and revenues have been on the rise, which has left investors pleased. Relative to its peers and sector, Sony has been an average year-to-date performer. WAIT AND SEE what Sony does this quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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